Our map reveals at a glance the hottest emerging markets of the past year, as determined by an algorithm incorporating economic growth, investment inflows and competitiveness. With data tables and Top 10 rankings across multiple vectors.

Viral V. Acharya, C.V. Starr Professor of Economics at New York University’s Stern School of Business and a former deputy governor of the Reserve Bank of India, speaks with Global Finance about the fallout of the coronavirus epidemic.

Best Investment Banks 2017: Deals of the Year

Advertisement

While the UK’s vote to leave the EU scuttled many a megadeal in Europe in the second half of last year, last December one mammoth transaction sailed through the City of London unscathed: the world’s largest private infrastructure deal of 2016, in which a consortium invested €15.9 billion to acquire 61% of the gas distribution network of National Grid in the UK.

That deal has since been held up as a model for project finance at a time when banks must hold more capital to satisfy Basel III and Basel IV requirements. At the same time, investors are jittery about volatile asset prices. This double bind is making it hard for dealmakers to convince banks to put more capital at risk and persuade investors that their investments will grow over time. It has also raised the cost of borrowing.

“Basel III and Basel IV are having a significant impact on the long-term project-finance market,” says Mark Bradshaw, a managing director at Macquarie Capital Europe, part of the National Grid consortium. “We are seeing the traditional project-finance lending banks pulling back on the capacity and size of underwrites and starting to raise margins significantly.”

The higher cost of funds is becoming painfully apparent in long-term infrastructure debt. In the six months last year when Macquarie was cobbling together funding for the largest private power plant in Europe, margins moved 25 points. Since the third quarter of last year, standard “vanilla” project-finance refinancing rates in the UK have moved 30 points. “We are looking to incorporate alternative lenders into funding solutions early in the process—and looking to the capital markets to fill the gap left by the project-finance lending banks,” says Bradshaw.

Investors are hungry for high quality, multibillion-dollar debt deals, as shown by Anheuser-Busch InBev Finance Inc. of Belgium’s success with two corporate bonds totaling more than $60 billion in 2016. Its $46 billion corporate bond issue in January 2016 was hailed as the largest on record; large bond issues were easier to trade than small ones as banks shied from debt capital market in response to capital requirements. Yet even that was not enough to satisfy investors, who placed more than $100 billion in orders. Since then, a passion for high-quality corporate debt has defined the global bond market.

That’s precisely what infrastructure dealmakers are hoping to capitalize on. “This will be an interesting period, with public bonds and ratings agencies called into project-finance capital,” says Bradshaw. “We are expecting a very buoyant and busy 2017 in the infrastructure space.”

Investors are so keen they’re willing to wait for a payoff. Raising $7.4 billion, Postal Savings Bank of China (PSBC) was the world’s largest IPO since Alibaba’s $25 billion in 2014, but share performance since then has been limp. However, nearly 80% of the shares were snapped up by deep-pocketed “cornerstone” investors who can’t sell for at least six months and will likely wait longer for robust returns; China is a long-term game.

AT&T’s $85.4 billion acquisition of Time Warner offers the company advantages of vertical integration, but could easily have been scuttled due to antitrust concerns. The telecom/media marriage was just approved by the European Commission on March 15, however, and looks set to win approval from the US Department of Justice under president Trump, as well.

DEALS OF THE YEAR

Infrastructure Deal

A consortium’s December acquisition of 61% of the gas
distribution network of National Grid in the UK for €15.9 billion